Harmonizing Away the Euro
The Wall Street Journal - Editorial, February 5th 2002
Alongside today we run a piece by a self-described thoughtful Euroskeptic, Charles Tannock, who gives a pretty good laundry list of all the aspects of the euro project which scare the British voter. All those who care about the success of the euro and of the European Union should heed his words.
This is because Dr. Tannock, a medical doctor and a Tory member of the European Parliament from London, always makes clear that he's not "a wrecker." To him, as opposed to some others in his party, Lenin's maxim that "the worst is the best" is not what should be wished for the European project. We don't subscribe to all of Dr. Tannock's or his party's fears about the EU. But we think that, on harmonization, their message is a good one for that growing number who hope that the EU, and the euro, need not become by definition instruments of socialism and therefore things only to be opposed everywhere, every time. The EU of course can also be a free market area which offers Europeans the liberty to pursue their dreams unfettered by borders and intrusive government regulation.
Those who still hope for the viability of this second model recognize what the push for "harmonization" of taxes and social policy is all about. It is the socialists' implicit recognition that the single market and the euro have become liberating forces which must now be neutralized. Harmonization, by which is meant the raising of taxes and welfare legislation to the level of the most socialist - today that being France - would make all corners of the empire equally unattractive to investors and the ambitious and talented. This attempt to prevent any economy from standing out is one of the main threats to any free market aspirations for the EU following the advent of the euro.
Now we fully realize that no self-respecting socialist would lose any sleep over these facts. They're very much aware that this is what they're after, though they might present the same case by saying that they're "preventing a race to the bottom" or "extending social benefits to all." We're quite prepared to debate matters on these terms too, and prove that the way to the bottom is paved with socialism, not with markets, and that capitalism is the best known system for expanding social benefit and providing the greatest number with a cornucopia of creature comforts. But that is a matter for another discussion.
Today's subject is the viability of the European project, and the case we'd like to make is that harmonization of taxes and social policies threatens not just free markets in the EU, but the EU itself.
The upward harmonization of taxes would quash growth everywhere - no more Irelands, no more Spains, no more UKs in due course, as corners of rationality that draw investment and somewhat diminish the overall outward flow of funds. The disappearance of these oases would make the whole of Euroland one large economic wasteland where industrialists would sink money only under duress. Money would flee. As fewer and fewer people wanted to hold euro assets, the single currency would lose more and more of its value, making today's levels seem high by comparison.
Now eurosocialists may blithely answer that, so what - our citizens, or those of them we care about, do not shop in New York, Tokyo or Rio. To which the response is that we do live in an interconnected world, and the rising price of imports throughout all levels of the economy would, like night follows day, cut into the purchasing power of all, especially those vulnerable ones living off meager pensions.
As no new plants or offices got built, and no old ones refurbished, the unemployment level would also rise. And this time these effects would not be attenuated, as they are now to some degree, by any labor mobility within the EU. Enterprising people could not hop the Channel, as they do now, to escape unemployment or the bleak fate of the underemployed and realize their dreams in dynamic Britain or Ireland. What would be the use of the EU at this point, one could ask.
And forget any sharing in the high-tech revolution which gave America good productivity growth even in the middle of a mild recession. Entrepreneurialism and inventiveness, not being rewarded in any corner of the eurozone, would wither. Government would try to step into the breach and make up the investment shortfall with its own spending, but because it's by definition political, its investment decisions would come strongly tinged by politics. Acceptance of the guiding ideology would sooner or later become a requisite for success.
A European Union that became this type of dystopia would sooner or later have to erect protectionist walls. This is not of course what thoughtful socialists want.
Those who wish to have a social model, a society that is less "cut-throat" or "cowboy," would deny all the above, and insist that theirs would be a society where man's full potential could be fully realized. If this were really true, they would not have to enforce their model, but would be happy for it to compete with others within the EU. People are wise, especially those with talents, and they would gravitate to the socialist paradises in the EU; the free-market corners would wither. Those of us who believe the opposite are happy to compete. All we ask is to be allowed to do so.
See related article: "Why Britons Fear the Euro" - WSJE Feb. 5, 2002